Category Archives: Best Practices

Sears’ Deadly Sins

By now, everyone knows the story of K-Mart, and its bankruptcy that was well chronicled in Marcia Layton Turner’s book on Kmart’s Ten Deadly Sins: How Incompetence Tainted an American Icon, which was summarized in a recent article by Vivek Sehgal on why Business Strategy Should Design and Determine Supply Chains over on the Supply Chain Management Review this spring.

But not everyone knows that Sears, part of the Sears Holding Company, may not have learned the lessons K-Mart failed to learn and may be going down the same path, at least North of the Border. Consider the following sins in particular:

  • Brand Management
  • Underestimating Walmart
  • Ignoring Store Appearance
  • Supply Chain Disonnect
  • Repeating the Same Mistakes

Let’s take them one by one. It hasn’t made a top 100 brand list in 3 years, since it made the virtue 100 in 2009, and 24/7 Wall St (.com) predicted it would vanish this year. It’s still around, but it’s not a household name. In fact, the only good rankings it is getting are for its mobile site, but we all know how limited mobile sales still are, and one has to wonder how long it is going to fare well in the online world now that you can get most of its products through Amazon Supply. There was a time when Sears was a household name, and would always be in the top 50 brands. Not anymore, although Lands End was recently recognized, but Lands End is not Sears. Just an apparel line.

Like every other big average consumer retailer, Sears underestimated, and North of the Border, continues to underestimate Walmart in my estimation. In the Great White North, Walmart is expanding like mad while Sears is barely holding the few locations it has in many places. While many of you are likely aware that Target is about to expand rapidly into Canada through its acquisition of the leasehold interests of over 125 stores from Zellers Inc., what many of you do not know is that many of the remaining stores that are (in the process of) being closed are being scooped up by Walmart. the doctor can’t remember the last time a Sears location opened in his province.

While Sears store appearance generally isn’t that bad, it generally isn’t that good. While Walmart stores are kept new, clean, and shiny, some of the Sears stores the doctor has been in lately are starting to look run-down, dusty, and drab. And many of the displays, which may have been attractive in the 80’s and 90’s, are looking dated. What’s going to happen when Target bursts onto the scene?

And the Supply Chain Disconnect is still there. Consider the fact, as reported in the SCMR article, that in 2010, four years after the merger, only 4 distribution centres out of 39 were shared between Sears and Kmart, while others continue to serve Sears or Kmart stores exclusively. Walmart is going to eat Sears alive!

Sears is repeating the same mistakes that Kmart made, and focussing in the wrong areas. Brands (like Lands End) are not going to save it. A good mobile site is not going to save it. The only thing that is going to save it is a renewed focus on supply chain (to get its operational costs in line with Walmart’s) and a focus on brand rebuilding. It has to be a household name again. Otherwise, it may not make it’s 200th anniversary, which is a mere 8 years away! I hope I’m wrong, but we’re in an age where billion dollar enterprises can go bankrupt almost overnight.

Good Advice from HBR on Understanding Suppliers in the Solution Economy

HBR recently published a post on understanding customers in the solution economy in which they noted that creating new value will require suppliers to combine their expertise with their understanding of their customers’ business needs. Which is completely true. They also said that this calls for changes in how B2B companies gather customer intelligence. Specifically, they need to

  • Ask different questions, much more often.
  • Observe the customer directly.

And they do. But since, generally speaking, a company that supplies a customer with a product or service outsources the production of that product, or the implementation of that service, to a third party, the company also needs to thoroughly understand its suppliers’ strengths and weaknesses to select the right supplier to manufacture the product or provide the service to the end consumer.

This means that where the suppliers are concerned, it has to:

  • Ask different questions, much more often.
  • Observe the supplier directly.

The questions need to move away from “do you have the facilities to make this product” to “what value-add do you add in the term of usability, reliability, or warranty support that we can use to meet the needs and want of our customers” and the questions have to be asked every time the customer needs change, not just once every three years when the category is resourced. You may not be able to change suppliers or alter the contract, but if you put in continual improvement and collaborative design clauses, you can at least make sure that subsequent iterations improve in the right direction. Similarly, on the service front, the focus should move from “do you provide service X” to “give us examples of how your delivery of service X met the following customer values and led to higher satisfaction ratings”.

Similarly, it’s not enough to just do a plant visit during the supplier qualification phase. There needs to be continual observation and interaction through the full contract life-cycle to make sure that the supplier undertakes continual improvement efforts, that issues are quickly identified and brought to your attention if they can not be quickly resolved, and that the level of professionalism and attention paid to you does not decrease over time as new customers enter the pipeline.

Procurement Value Creation Ideas, Part II

Recently, over on StrategicSourcing.com, Mickey posted her thoughts on “Procurement Value Creation Ideas”, highlighting four areas in particular that she thought were good targets:

  • Revenue
    Does your Supply Management team understand the value that needs to obtained from suppliers to bring innovation to products, materials, and business processes? Does sourcing reduce time-to-market for new products and services?
  • Costs
    Does Supply Management extend their focus to supplier variable and fixed cost structures, which materially contribute to the suppliers’ product and service costs?
  • Working Capital
    Does Supply Management understand the company DSO, ITR, and DPO equations and their interrelationships? [Days Sales Outstanding, Inventory Turnover Rate, Days Payable Outstanding] Does your Supply Management team work towards improving the ITR and balancing DPO with DSO? Does Supply Management Team contribute to S&OP? [Sales and Operations Planning]
  • Fixed Capital
    Does Supply Management play an active role in capital expenditure management? Are maintenance and service standard items contained in contracts and purchase orders?

These are great ideas, and a great start, but not all of Supply Management’s value creation potential is immediately realized, and not all can be easily measured in the revenue, cost, or capital management equations.

Consider:

  • New Market Identification
    By the time you identify the market, identify the proper products services, design them, source them, and sell them, it will be a while before you can measure the effects on revenue. Even costs will be difficult to measure as they will decrease as efficiency and volume increases.
  • Brand Building Potential
    Sometimes, the right supplier can enhance your brand, and decrease the marketing cost and effort require to enhance your brand the same amount. This can be very hard to measure, but Supply Management will be critical in obtaining the right relationship with this supplier.
  • Alternate Material / Component Identification
    A Supply Management team that keeps tabs on the market may not only be able to identify more cost effective alternatives, but also more sustainable / environmentally friendly ones, which could boost your brand image and lower your long term costs and risks.

Supply Management can do more than just impacting the top and bottom lines in the short term, and do more than impacting these lines in the long term. It can improve your image, increase organizational stability, and lower your risk. Don’t forget this.

Ten Tips To Top TMS

Inbound Logistics just published a good piece on “how to choose the right TMS for your company”. Almost makes me want to forget about that double play I recently scored against them.* Almost. 😉

Anyway, most of the tips in this article were dead on, even if some were a little obvious. By now, where Supply Management Systems are concerned, we all know that you definitely want to pick the right size provider, check references, try before you buy, check off all of your-must haves, and consider ongoing upgrades. The good tips were the following:

  • Time It
    Bring a stop-watch to the demos, and keep it by your side when you try it. Does it improve efficiency? If it doesn’t, what are you paying for?
  • Call Support Before You Buy
    If you can’t get through now, do you think you’ll get through later?
  • EDI is Essential
    Whether it’s EDI, XML, API, etc., you need to be transmitting and receiving all your documents electronically. If you have to pay by the bit, watch out! There shouldn’t be transmission fees when internet connectivity costs are fixed. You can be damn sure your provider isn’t paying by the bit, they’re paying a fixed cost for a dedicated 100 MB feed to their data centre. The cost for EDI should be a low, flat rate per month (up to a certain GB limit, because if the provider goes over their dedicated transfer rates, they will pay overage charges and have to pass them on).
  • Count the Cost in Money and Time
    It’s not just the cost of the TMS — it’s the cost of the TMS, the hardware, the connectivity, the integration, the training, the support, etc., etc., etc. as I have outlined repeatedly (and given you a spreadsheet for). But that’s just the hard cost. If the system takes a long time to set up, a lot of manpower to maintain, and decrease efficiency when compared to the current system, then the ownership costs will continue to pile up over time.
  • Can it Be Customized?
    This may not be that important for you, but if it is, and the system can’t be customized effectively and cost efficiently, find a new system – ASAP.

For the rest of the advice, see the article on “ten tips to choosing the right TMS for your company”.

*We’re not mysterious. We’re Canadians!
The Best Way to Insure Routing Guide Compliance

Wait!

That’s right, don’t make that big decision today, Wait and use the art and science of delay to your advantage.

With summer came heat and a new book by Frank Partnoy, Professor of Law and Finance at the University of San Diego and the Co-Director of the Center for Corporate and Securities Law. In Wait, Frank proposes a contrarian perspective on decision making that suggests that slowing down your response time can yield better results as per a recent review over on S+B.

According to Frank, decisions of all kinds, whether “snap” or long-term strategic, benefit from being made at the last possible moment. The art of knowing how long you can afford to delay before committing is at the heart of many a great decision. This is a great maxim for Supply Managers to live by. There’s a reason that sales people often want you to “act now” and have you “take advantage of this deal before it’s too late” is they know that if you don’t act now, and do your homework, you’ll probably figure out the merchandise is over-priced, over-represented, or not quite what you’re looking for and that you can get the same deal, with a bit of patience and negotiating, from a hungrier supplier down the street.

And this goes double for software sales. If the sales-person is paid a variable commission based on total sales for the quarter, or year (which is a stupid way to implement an incentive model, by the way*), at certain times of the year he’s going to be very pressured to just make a sale, any sale, and all too eager to over-promise what he knows the IT department will likely under-deliver on.

This maxim should also be applied in the selection of new logistics providers, supply chain designs, and operating procedure changes. While it is imperative that your supply chain be as lean and mean as possible, it often happens that rushing to meet the goal only results in a whole lot of running as rushed implementations often end up with holes that require a whole lot of rushing to fill. And while it’s likely that you are losing money every day you don’t implement that new supply chain design that is expected to save you millions, if you don’t take the time to do a proper risk assessment, you could lose your savings five times over when a new tariff scheme gets approved in six months (that everyone who did their research saw coming) or a trade agreement expires.

So while you should be exploring new technologies, processes, and innovations that could enhance your Supply Management organization as soon as you discover them, you shouldn’t rush a final decision until you’ve given yourself some time to re-examine all the findings. (But then, once you’re sure, jump in with both feet. If you hold back, in Supply Management, even the best laid plans will fail.)

* While a software company should incentivize it’s sales team to sell more, it should not do so at the cost of customer success. There are better ways to implement an incentive model which will allow both goals to be achieved.